Certificated or Certified Stocks, Certificated Commodity Stocks

Friday, November 14, 2008

What are Certificated or Certified Stocks?

Certificated stocks or certified stocks or deliverable stocks are (stored) stocks of commodities (do not misunderstand with stocks of companies) which are certified to meet the basis grade set by exchanges. The commodities are tested for both quality and quantity at a designated location and are used as delivery against futures contracts.

Certification of commodity is done by an authorized representative of futures trading exchange; after that only the product is considered as acceptable for delivery. The process is widely used for agricultural and food products especially grains, where certified stock is known as ‘stocks in deliverable position’.

In futures trading, there are many advantages of this certification process.

The quality and quantity of underlying commodity is assured.
Sellers get a clear idea about what they are selling and buyers will be clear about what they are buying.
Trading of commodities which do not meet the requirements is reduced.
Helps in developing a warm relationship among the producer, the market and the buyer; and assures smooth functioning of market.
Create competition among producers to produce more quality products; today there are many producers who easily exceed the standards set by different markets.